Florida Asset Protection Law Blog | Attorney Jon Alper

One of most important indicators of a fraudulent transfer is the receipt of value as consideration for the transfer. If a debtor transfers title to a person or entity and receives nothing in return the transfer is susceptible to fraudulent transfer allegation, but if the debtor receives consideration reasonable equivalent value the transfer appears more as a “fair trade” rather than an attempt to evade a creditor.

Some people have  suggested to me  that a debtor’s receipt of fair value defense  applies to a debtor’s transfer of non-exempt money or property from the debtor’s name to an LLC or partnership owned by the debtor. They contend that a debtor’s transfers to an LLC or partnership is not a fraudulent transfer when the debtor receives LLC or partnership interest in exchange for the conveyances to the LLC or partnership.  The LLC/partnership interest is a fair trade for the assets conveyed.

If one accepts this argument, then it would be very difficult for a creditor to reverse almost any transfer from a debtor to the same debtor’s multi-member LLC or partnership because the debtor will show that he received an asset (the interest) comparable in value to the asset he transferred out of his own name. A creditor would be left with only a charging lien against the LLC or partnership interest even thought the creditor could have levied or foreclosed the non-exempt asset when it was titled in the debtor’s name.

 

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I had always thought that a creditor can garnish a debtor’s bank account in any state where the bank maintained a branch office. For example, if a debtor opened a bank account at a small Georgia bank, and the bank had a branch in Florida, a Florida court could issue a writ garnishment against the debtor’s account to be served upon the Florida branch of the Georgia bank. The creditor did not have to domesticate the judgment in Georgia and garnish the account at the Georgia bank branch where the debtor opened the account. If the Georgia bank had a branch in South Carolina, for instance, a creditor can garnish the account with a South Carolina writ. I think the law as described makes sense.

I came across a federal district court case with a different view, a view that would make more difficult the garnishment of a debtor’s  bank accounts opened outside of Florida. In this case, a debtor opened a bank account at a Pennsylvania branch of PNC Bank. PNC is a Delaware based bank with branches in many states including Florida. The debtor moved to Florida. A creditor obtained a Florida judgment against the debtor. The creditor served a writ of garnishment at a PNC branch in Florida.

A federal magistrate issued a report and recommendation, adopted by the district court judge, dissolving the writ of garnishment because a Florida garnishment writ could not apply to a bank account opened and maintained at a branch outside of Florida even though the bank had a Florida branch. The report finds that a Florida court does not have jurisdiction over property situated in another state, and that money in a debtor’s bank account is located at the branch and in the state where the debtor maintains the account relationship. Because this debtor’s account and money was in a Pennsylvania branch of PNC a Florida court could not exercise jurisdiction over the money through a writ of garnishment.  The report stated that the creditor still has a remedy in Pennsylvania to satisfy the judgment from the debtor’s bank account. The cite is 2010 WL 1790439

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A Florida court issued a decision upholding a California court’s power to force a Florida debtor to convey title to his homestead property to a receiver on behalf of a creditor.

A simplified version of the facts are as follows.  The debtor is an elderly widow. Her deceased husband had been appointment trustee of a family trust. The husband stole money from the trust and bought a house in California. Subsequently, the husband’s first wife died and the husband married the debtor. The husband died. The surviving spouse, the debtor, sold the California house and bought a Florida homestead. The debtor was not a party to and had no knowledge of her husband’s theft of trust assets which occurred prior to the marriage.

The trust beneficiaries sued for the husband’s breach of fiduciary duty. The California court issued an order imposing a “constructive trust” on the Florida homestead which had been purchased with the proceeds of the husband’s wrongdoing. The California court issued an injunction against the debtor requiring her to convey her Florida homestead to a receiver acting on behalf of the trust’s beneficiaries. When the beneficiaries tried to enforce the California order in a Florida court the debtor said that a California court could not force her to convey her homestead.

 

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There have been several newspaper articles in the past month criticizing the HAMP mortgage modification program. I read an article stating that only twenty five percent of HAMP applicants achieve permanent mortgage modifications. Some politicians have expressed that HAMP should be terminated nationally. To be fair, some people have greatly benefitted from a HAMP mortgage modification.

One couple I know achieved a significant permanent modification of their mortgage with a large mortgage bank. About a year after the initial modification, the bank sent them an unsolicited letter inviting them to apply for a second modification. The bank said that the decrease in household income the couple experienced after the first modification might qualify them for more modifications. They applied, and it worked.

The second mortgage modification included a further reduction in the monthly payment and a seventy five thousand dollar principal reduction. If the couple made timely payments of their mortgage payments for three years the bank would permanently write off $75,000 from their mortgage. The reduced mortgage payment would be less than this couples original purchase mortgage. What the bank was doing was eliminating all the deferred interest, fees, and cost which had been added to the mortgage principal because of late payments and the initial modification plan.

Have hope. Mortgage modification is very difficult, but it is possible.
 

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Real estate values are decreasing again, and inquiries about short sales are increasing.  Here are two examples from this week about people who made the wrong decision about short sales. The first client called me today about dealing with the consequences of a short sale contract he had signed.. The client told me he had spoken with two or three mortgage assistance companies about whether he should pursue a short sale of his financially troubled property. He said each of the companies  advised him not to do a short sale, but that he should file bankruptcy instead. Other people have told me they had consulting bankruptcy attorneys who likewise had advised them to file bankruptcy in advance of a foreclosure to wipe out the “possibility” of a deficiency judgment.

Bankruptcy is the last resort to deal with real estate problems. I’ve written previously that first mortgage  deficiency judgments are uncommon. First mortgage lenders who pursue deficiency judgments usually will settle for a small percentage of the total liability. Your protections and exemptions in bankruptcy are less than they are under state law outside of bankruptcy. And, once you get yourself in bankruptcy you cannot get out without cause. Understand that some bankruptcy attorneys see bankruptcy as the only way to deal with financial problems; it is the only legal tool they know. Bankruptcy should be considered only after a lender sues for a deficiency, gets a deficiency judgment, refuses settlement, and is about to garnish wages or levy upon assets.

 

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It is easier for debtor’s to assert  head of household exemption from wage garnishment after a ruling by a Florida court. I read about this decision on the Florida Collection Law Blog edited by Jorge Abril. Mr. Abril’s blog post explains that under Florida statutes once a debtor asserts that his wages are exempt from garnishment because he is head of household a creditor has only two days to file with the court an affidavit denying the exemption. In the past, the creditor’s attorney would sign the affidavit on behalf of his client.

The appellate court said that the creditor attorney may not submit the denial affidavit on behalf of the creditor. The affidavit must be signed by the creditor. Mr. Abil writes that, “As a practical matter, given the strict time constraints for filing the sworn denial - 2 days - the requirements imposed by this case will make it difficult for the attorney who represents a hard to reach client to defeat a claim of head of household exemption [regardless of the claim's merit.”

From the debtor’s prospective a debtor may be able to defeat a wage garnishment simply by submitting an affidavit of head of household. Another practical matter: the debtor’s attorney should not advise his client to submit a head of household affidavit the attorney knows, or has reason to suspect, is not true. The debtor attorney should do nothing more than inform his client of the laws and the applicable procedures.
 

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If you have paid money to the IRS to cover estimated future tax liability, can a judgment creditor ask the IRS to turn over the money the IRS is holding on your account? One of my clients has in his possession a large amount, over $1 million,  of U.S. Savings bonds. He understands that a prospective judgment  creditor may be able to attack the bonds. The client wants to cash out the bonds and take other measures to protect the cash. If he redeems the bonds, he says, the bank will pay the IRS money to cover his estimated tax liability on the savings bond interest. He wants to know if a creditor could get the money the IRS is holding for an uncertain future tax liability.

Federal law prohibits civil judgment creditors from garnishing the IRS. Creditors cannot garnish tax refunds in the IRS’s possession. Some debtors seek protection of cash by advance payment, or overpayment, of future tax liability. In bankruptcy, a prospective tax refund is property of your bankruptcy estate and must be turned over to the bankruptcy trustee when received from the IRS. A trustee cannot take the money from the IRS before the refund is issued to the debtor.
 

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